Did Ken Henry champion a resource rent tax or not?
You’d never know it. His recent speeches, and the media coverage of them, is showing some bizarre implicit compact between a business media that’s happy to cremate the resource rent tax in the name of an extreme pro-mining (not pro-nation or even pro-business!) point of view and Ken Henry himself who, for some reason, doesn’t want to remember his own tax.
To be clear, the philosophical underpinning of the Henry Review was to shift from taxes that were vulnerable to the mobility of capital to those that taxed stuff that couldn’t move. The centre piece of this was a 40% resource rent tax, which was to be recycled as a big corporate tax cuts for everyone else.
In short, it aimed front and centre to address Dutch Disease.
Yet, for the past several days we’ve had a procession of AFR articles praising Henry every time he endorses a position against preventing market forces from having their way with the Australian economy during the commodity boom. Today’s editorial is typical:
Former Treasury secretary Ken Henry has done the Gillard government a service with his exposition last week on how the modern Australian economy should be working. This should not have come as any surprise to the government. The basic argument about the benefits of adjusting to the quadrupling of prices for our major commodity exports is implicit in Treasury statements and has been made by many other commentators, including this newspaper.
But freed of the political constraints of the bureaucracy, Dr Henry’s speech to the Australian Conference of Economists has provided a cut-through explanation of the pressures from the resources boom that ministers have a responsibility to now take forward. He has carefully explained how rising minerals prices dramatically increase the demand for workers in the resources sector and that these must come, in part, from the non-resource parts of the economy, including manufacturing.
While importing foreign labour, increasing workforce participation and increasing productivity can all play a useful role at the margin in reducing this structural change, they cannot deliver the increase in the labour supply required by the sort of increase in commodities demand we have experienced.
But the powerful point is that the scale of the increase in our mining and energy sectors inevitably will require a reduction in other parts of the economy.
Ummm, Ken Henry is still Special Advisor to the Prime Minister (at least it says so on Wikipaedia). That is, he’s on the payroll, which is hardly “freed of the political constraints of the bureaucracy”. And what is the point in cherry-picking Henry’s pro-adjustment statements when he also championed a massive resource rent tax to ease that same adjustment?
Of course, the resource rent tax does get a mention in another story, but only in the context of whether or not its bastardised child, the MRRT, should be scrapped:
The head of the Labor government’s sweeping review of the tax system, Ken Henry, has queried whether the compromises made on the minerals resource rent tax made the entire tax worthwhile, as he pushed the case for reform of road charging and the corporate rate.
Dr Henry, now an adviser to the Office of the Prime Minister and a former Treasury secretary, expressed regret that the 30 per cent MRRT on iron ore and coal was no simpler than the 40 per cent resource super-profits tax on most minerals he originally proposed.
“The obvious question I dare not ask is whether it was worth it . . . I dare not even think about the question,” he told a forum at the Australian National University in Canberra.
“There is no way the public can understand what has been legislated. It’s actually more complicated than what was originally proposed.”
“We should start again – you could hardly think of doing something worse but Gillard has championed it,” he said.
That’s all we get on the subject of whether the tax should be rebuilt. Instead the AFR goes on with an attack on the government for cherry-picking parts of the Henry Review:
Dr Henry’s review of the taxation system in 2010 put forward 138 recommendations. Only a few were taken up by the government, which would not let him consider a GST increase.
In effect the AFR articles attack the government for failing to implement the full Henry Review, while championing a partial approach to the Review that ignores its centre-piece resource rent tax.
For the record, Henry proposed a huge resource rent tax. Without it, the rest of the Henry Review gets really quite unbalanced. Henry is not an honest broker on this question. And neither is the AFR, it seems.
